Cadbury Schweppes has announced a large drop in profits for the year to 28 December 2003 of 32%. The group today posted a fall in profit before tax to £564m from £830m, although total turnover for the year rose to £6.4 billion from £5.3 billion year-on-year.

After a number of years of strong performance, the non-carbonate sector had a mixed year. Demand in the group's core categories was weak, particularly in its North-East US heartland where Snapple sales in the high margin convenience channel were adversely impacted by the cold summer.

The performance of the company's carbonated soft drinks portfolio improved steadily throughout the year. Carbonates volumes were up by 1% in Q4 excluding the impact of the 7 UP transfers. CS also saw strong growth from its diet portfolio which grew by 9% during the year.

Profit margins in the second half were impacted by adverse product mix in the non-carbonate business, the costs of preparing Americas Beverages for a major new IT system in 2004, and continued inflation in employee and raw material costs.

The coming together of the group's three businesses in North America - Dr Pepper/Seven Up, Mott's and Snapple - into a cohesive refreshment beverage operation was significantly advanced by the year-end with cost savings generated through the consolidation of commercial and back office activities, the company said.

Europe Beverages had a slow start to the year in markets which were generally weak. Performance in the second half in all key businesses was boosted by the hot summer, particularly in France, Spain and Germany. However, the profit performance was impacted by the cost of contracting out production to meet demand in the peak summer months.

The company saw strong performances from Schweppes across the region but particularly in France and Spain where new packaging boosted sales growth in the hotel and restaurant trade. In France, the company's diet carbonates portfolio outperformed a segment growing at 30% in 2003, driven by Orangina, Schweppes Agrum and Schweppes Lemon.

Apollinaris & Schweppes continued to progress well, outperforming a market which was severely affected by the German government's introduction of mandatory deposits on non-returnable packaging. Volumes were ahead of 2002 and the business is investing in extra returnable capacity to satisfy strong demand.

In a statement, chief executive Todd Stitzer said: "The final quarter of 2003 saw a broad based improvement in performance and we have seen an encouraging start to 2004. The Fuel for Growth cost reduction initiatives are being executed to plan and are expected to deliver significant benefits in 2004 and beyond.

In mid-2003, the company began to implement a major four-year cost reduction initiative, known as Fuel for Growth, with the aim of cutting direct and indirect costs by £400m per annum by 2007. The company expects to deliver gross cost savings before reinvestment in growth related activities, of £75m in 2004.

"We expect to deliver 2004 financial performance within our goal ranges of 3% to 5% net base sales value growth and 50 - 75 basis points of operating margin increase annually," Stitzer said.